Health insurers are beginning to realize the importance of downstream cost-saving. By paying to keep people healthy now, health insurers avoid major expenditures later when they must cover chronic conditions and hospitalizations. For example, by paying for nutrition counseling and fitness programs for prediabetics, health insurers can reduce the rate of transition to diabetes for their clients, which both saves the insurer thousands of dollars and keeps their clients happier and healthier. This type of innovation is possible because the law requires certain expenditures, i.e. doctors must treat individuals at the emergency room, and these expenditures tend to be quite large if incurred.
Social services in general could enjoy this type of innovation if funding were pooled between government services, and healthcare, housing, food, and direct welfare were all managed together. Currently, each is conceived as a separate welfare program, so one can only recognize reduction within a program, not how the programs interact. For example, it may be that the expansion of SNAP benefits would decrease emergency room visits and end up being cost-saving overall. It may also be that certain types of subsidized housing reduce the need for other services and are more cost-saving than others, but this is hard to recognize when each program is segregated. One could imagine that subsidized housing built in areas with better access to quality food and jobs would be more expensive upfront, but could save in money overall by reducing the need for other benefits. Because social services currently have a system of mandatory spending in the form of entitlements, there is an incentive to ensure that individuals transition away from use of the more expensive services.
If the provision of social services took a managed care approach, as is currently in place with health insurance, there would also be a stronger incentive for innovation. If providing vocational training would save money downstream in housing, food, direct welfare, and emergency room visits, then an agency would have an incentive to provide this service. The same would be true if providing daycare reduced the need for welfare, housing, and emergency room visits and would end up saving overall. Currently, these programs would appear to be new welfare programs that incur additional costs, not fiscally responsible innovations. A managed care approach to social services would save taxpayers money overall and lead to better outcomes for those it serves.